After racking up a whopping net loss of $985 million and suffering a $4.3 billion loss in sales last year, Penney\’s shrinking fortunes could take another hit depending on how New York Judge Jeffrey Qing rules on a case in which Macy\’s
seeks to block Penney from selling Martha Stewart
home furnishings.

Macy\’s claims J.C. Penney is horning in on a contract it has held since 2007 to sell Martha Stewart wares.

While Judge Oing has yet to rule on the case, he told Penney\’s lawyers on Monday the company \”took a risk\” by ordering from Martha Stewart and warned he could order Penney to keep the products off their shelves this spring, the Associated Press reported. Qing also said his decisions can\’t be influenced by \”financial matters\” even though he understands the financial repercussions.

Nervous investors sent Penney\’s shares tumbling 5.4% on Monday. The company\’s stock has fallen 57% over the past year. Setting up Martha Stewart in-store shops is a centerpiece of CEO Johnson\’s strategy to turn around the struggling department store chain and outfit it with in-store boutiques that would also include lines from Joe Fresh and Liz Claiborne.

Vornado was Penney\’s third largest shareholder in October, holding about 19 million shares, according to FactSet. Activist investor Bill Ackman\’s Pershing Square and Dodge & Cox were the two largest shareholders as of December.

The drama continues Tuesday as home maven Martha Stewart herself is expected to testify in the court case following testimony from Johnson and Macy\’s CEO Terry Lundgren.

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